Monday’s Vital Data: Alibaba, Qualcomm and Canopy Growth

Stock Market

U.S. stock futures are trading lower this morning as equities take a well-deserved breather following a strong two-week run to record highs.

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Heading into the open, futures on the Dow Jones Industrial Average and S&P 500 are lower by 0.42%. Nasdaq Composite futures have lost 0.41%.

In the options pits, overall volume receded from the lofty levels seen during the market’s recent breakout. Calls still led the way, though, with about 19.4 million contracts traded versus just 16.5 million for puts. Meanwhile, over at the CBOE Volatility Index (VIX), the single-session equity put/call volume ratio rose to 0.59, or the middle of its two-week range. The 10-day moving average sank just south of 0.58.

Options traders swarmed Alibaba (NYSE:BABA), Qualcomm (NASDAQ:QCOM) and Canopy Growth (NYSE:CGC), among other big names on Friday.

Let’s take a closer look.

Alibaba (BABA)

Alibaba is storming the headlines this morning after setting a new Singles Day sales record. The China-based titan of e-commerce raked in north of $30.5 billion in gross merchandise value which was the previous record set in 2018. Despite all of the attention, however, BABA stock is set for a tame open this morning.

Before the bell, BABA is trading down $2.43 or 1.3%. The lukewarm reception to the record sales number could be a byproduct of the lower open in stock futures weighing on BABA. On the price chart front, the stock has been looking up of late. Last week’s surge finally created a sustainable breakout over $180, carrying shares to a fresh six-month high. With all major moving averages now cruising higher, buyers have officially wrested control of the trend across time frames.

Unless we break back below support near $175, the trend is intact, and dips are buyable events.

Options trading pushed to 147% of the average daily volume, with 280,203 total contracts traded. Calls accounted for 58% of the session’s sum.

The increased demand drove implied volatility slightly higher to 30%, placing it at the 20th percentile of its one-year range. Premiums are baking in daily moves of $3.53 or 1.9%. With option prices cheap, buying call vertical spreads (aka bull calls) is my strategy of choice here.

Qualcomm (QCOM)

Earnings lit a fire under Qualcomm shares last week and the blaze was burning bright all the way into the weekend. The rousing two-day rally carried QCOM stock to a 52-week high and places it in a prime position to attack the century mark.

For its fiscal fourth quarter, the smartphone chipmaker earned 78 cents per share on $4.8 billion in revenue. Both measures topped analyst forecasts. The renewed momentum on its price chart makes QCOM an attractive buy candidate into weakness. Given its overbought status I prefer that to chasing new longs at this stage.

On the options trading front, traders were loving calls throughout the session. Activity swelled to 402% of the average daily volume, with 177,381 total contracts traded. 74% of the trading came from call options alone.

Implied volatility rallied back from Thursday’s sharp post-earnings crush, lifting to 32% or the 26th percentile of its one-year range. Premiums are pricing in daily moves of $1.89 or 2%.

Canopy Growth (CGC)

Canopy Growth shares rallied 12.5% Friday after the Canadian cannabis producer unveiled a new partnership with actor-musician Drake. Volume surged on the session, with nearly 11 million shares traded. While I’d like to buy into the optimism, the price chart doesn’t support it. Not yet, at least.

We could have the makings of a double bottom pattern at $19, but CGC stock needs to climb above resistance at $22.70 to complete and confirm the turnaround. Until then, I’d view the rally as suspect. And then there’s the earnings announcement slated for Thursday morning. Taking positions ahead of an event that has delivered large losses to the stock in the prior two quarters is a risky proposition.

Friday’s news sent speculators into call options. Total activity grew to 351% of the average daily volume, with 141,342 contracts traded. Calls claimed 65% of the day’s take.

Uncertainty is sky high ahead of earnings at 98% or the 96th percentile of its one-year range. Premiums are officially juiced suggesting selling options offers big pay-days if you’re willing to brave the uncertainty of the quarterly report.

As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. For a free trial to the best trading community on the planet and Tyler’s current home, click here

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